HONG KONG- The dollar was near a four-and-a-half-year top against the yen on Tuesday, after Federal Reserve Chair Jerome Powell was reappointed for a second term, emboldening bets on higher US interest rates.
At 114.8 yen the greenback is near last week’s peak of 114.97, its highest since March 2017, having jumped 0.77 percent on Monday.
The Japanese currency is sensitive to moves in US Treasury notes and two-year US
Treasury yields rose 8.5 basis points on Monday to their highest since early March 2020.
They last yielded 0.5924 percent. US/
US President Joe Biden chose Powell over the other leading candidate Lael Brainard, whom markets consider to be the more dovish of the two, though Brainard will be Fed vice chair.
The news reinforced market expectations of rate rises next year when the central bank finishes tapering its emergency bond buying program.
Currency markets have been mostly driven by market perceptions of the different paces at which global central banks reduce pandemic era stimulus and raise rates.
“Chair Powell’s nomination for a second term will leave markets comfortable pricing in Fed lift-off from July next year,” said analysts at Westpac in a note. “At least three Fed officials have now openly discussed speeding up tapering too.”
“Meanwhile, virus suppression measures are being implemented in Europe again, making for a stark contrast,” they added.
The euro languished at $1.124, around a 16-month low, having lost 2.8 percent so far this month.
The common currency has been hurt by the dovish tone coming out from the European Central Bank and more recently a resurgence in COVID-19 cases in Europe, which forced Austria back into a full lockdown on Monday and caused Germany to consider tighter restrictions.
